The global speculative-grade default rate ended January 2006 at 1.8%, slightly down from 1.9% at the end of 2005, Moody’s Investors Service reported today.

The global speculative-grade default rate has remained near the 2% level for the past 11 months, it said. Moody’s expects a gradual increase in the pace of defaults. Its default rate forecasting model predicts that its issuer-weighted global speculative grade default rate will rise from its current 1.8% level to 3.3% by the end of January 2007.

Moody’s model-based forecasts are based on changes in the distribution of credit ratings and macroeconomic variables. Current readings suggest that the pace of ratings improvement may slow as economic growth moderates in 2006, it says. The default rate is expected to remain below its 5% historical average for the foreseeable future, however, the rating agency added.

“We do not see any catalysts in place that would lead us to expect a sharp increase in defaults. The fundamentals suggest higher default rates by the end of the year, but the rise is consistent with a cyclical turning of the credit cycle,” said David Hamilton, director of Corporate Default Research.

In the U.S., the speculative-grade default rate remained at 2.4% from December 2005 to January 2006. The U.S. default rate is down from 2.8% one year ago, Moody’s noted. In Europe, the speculative-grade default rate fell to 0.5% in January 2006, more than half its December 2005 level of 1.1%. The current European default rate is at the lowest level in the past seven years.

Measured on a dollar volume basis, the global speculative-grade default rate opened at 3.7% in January 2006, slightly below December 2005’s 3.8%, but up considerably from the 2.2% level a year ago.